IN THE SUPREME COURT OF TEXAS
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No. 15-0970
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REEVES COUNTY APPRAISAL DISTRICT AND LOVING COUNTY APPRAISAL DISTRICT,
PETITIONERS
v.
VALERUS COMPRESSION SERVICES, A TEXAS LIMITED PARTNERSHIP AND
VALERUS COMPRESSION SERVICES MANAGEMENT, LLC,
A TEXAS LIMITED LIABILITY COMPANY, GENERAL PARTNER, RESPONDENTS
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ON PETITION FOR REVIEW FROM THE
COURT OF APPEALS FOR THE EIGHTH DISTRICT OF TEXAS
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PER CURIAM
Valerus Compression Services owns and leases out compressor stations used to deliver
natural gas into pipelines. Some of these compressors are in use in Reeves and Loving counties.
In response to a 2012 amendment to the Tax Code that included leased heavy equipment in a
statutory formula used to value heavy equipment held by dealers for sale, Valerus began paying
taxes on the compressors located in Reeves and Loving counties to Harris County, where Valerus
contends it maintains its principal place of business. But Reeves and Loving counties continued to
place the compressors on their appraisal rolls at full market value, arguing that their presence
within the counties fixes taxable situs there.
The respective appraisal-review boards sided with the counties. Valerus sought judicial
review. In the trial court, the counties argued Tax Code sections 23.1241 and 23.1242—the
provisions the legislature amended in 2012—are unconstitutional on their face and as applied
because the statutory formula for valuing leased heavy equipment bears no relationship to any
measure of market value as required by the Texas Constitution. The counties also argued that taxes
on the compressors were due to Reeves and Loving counties, not Harris County. Finally, they
argued the compressors are not “heavy equipment” under Tax Code section 23.1241(a)(6), and
therefore do not fall under the challenged statutory framework. The trial court sided with the
counties on the first two issues but with Valerus on the third.
Both parties appealed, but the counties dropped their argument that Valerus’s compressors
are not “heavy equipment” under section 23.1241(a)(6). The court of appeals reversed the trial
court’s determination that sections 23.1241 and 23.1242 are unconstitutional but affirmed its
conclusion that the compressors’ taxable situses are Reeves and Loving counties rather than Harris
County. See 478 S.W.3d 20, 27–35 (Tex. App.—El Paso 2015).
Both parties sought our review and this case was consolidated for briefing with four other
similar cases. On March 2, 2018, we issued an opinion in EXLP Leasing, LLC v. Galveston Central
Appraisal District, 554 S.W.3d 572 (Tex. 2018). That opinion is largely dispositive of the issues
presented in this petition for review.
In EXLP Leasing, we considered the same constitutional challenges considered by the court
of appeals in this case and held that the Galveston County appraisal district failed to rebut the
presumed constitutionality of Tax Code sections 23.1241 and 23.1242. Specifically, we rejected
the district’s argument that “for constitutional purposes, ‘value’ under article VIII, section 1(b)
means the actual market value a willing buyer would pay a willing seller for the compressors at
issue.” Id. at 576. Instead, we acknowledged that it is the legislature’s province to set valuation for
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tax purposes so long as it does not act unreasonably, arbitrarily, or capriciously. Id. at 576–81. We
also rejected the same argument made in this case that sections 23.1241 and 23.1242 violate the
constitution’s equal-and-uniform provision found in article VIII, section 1(a). Id. at 580–81.
The court of appeals in this case likewise concluded that “the constitution does not
prescribe a particular formula or standard for determining the ‘market value’ of property.” 478
S.W.3d at 28. Noting that the method for valuing leased heavy equipment in sections 23.1241 and
23.1242 is “neither novel nor unique,” the court of appeals considered it “eminently reasonable to
require dealers of inventory held for lease or rent in the ordinary course of business to pay taxes
only on inventory actually leased or rented.” Id. at 29–30. The court of appeals went further than
we did by considering the reasonableness of the underlying statutory framework. Cf. EXLP
Leasing, 554 S.W.3d at 580 (concluding we “need not consider” EXLP’s “vigorous defense of
sections 23.1241 and 23.1242 as an efficient and equitable statutory scheme” because “[t]he county
made its stand on the idea that the constitution compels a market-value approach” and “offers no
other reason why the statute is unconstitutional”). Nonetheless, the court of appeals’ holding that
the appraisal districts failed to establish sections 23.1241 and 23.1242 are unconstitutional on the
basis that property must be taxed in proportion to its market value is consistent with our opinion
in EXLP Leasing. Similarly, its conclusion that the counties failed to establish that those provisions
violate the constitution’s equal-and-uniform provision is consistent with our rejection of that
argument in EXLP Leasing. Id. at 580–81. On these issues, the court of appeals’ judgment is
affirmed.
On the question of where the compressors at issue are properly taxed, however, the court
of appeals’ conclusion differs from ours in EXLP Leasing. We concluded that “sections 23.1241
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and 23.1242, read together, reflect the legislature’s intent to fix the situs of dealer-held heavy
equipment at the location where the dealer maintains its inventory rather than at the various
locations where the equipment might otherwise by physically located.” Id. at 583. Accordingly,
we held that Tax Code section 21.02, which contains default provisions for determining taxable
situs, “does not control the taxable situs of property covered by section 23.1242.” Id. at 585. The
court of appeals, however, concluded that Valerus failed to rebut the presumption that Reeves and
Loving counties are the compressors’ taxable situses under section 21.02. See 478 S.W.3d at 35.
Because we held differently in EXLP Leasing, we reverse the court of appeals’ judgment on the
issue and render judgment that the taxable situses of Valerus’s compressors located in Reeves and
Loving counties are controlled by Tax Code sections 23.1241 and 23.1242.
Valerus further moved for summary judgment that taxes on the compressors at issue “were
properly declared and paid in Harris County, not in Loving County.” On the record before us,
however, we cannot say that Valerus was entitled to judgment that taxes were properly paid in
Harris County. In EXLP Leasing, we held that “sections 23.1241 and 23.1242, read together,
reflect the legislature’s intent to fix the situs of dealer-held heavy equipment at the location where
the dealer maintains its inventory rather than at the various locations where the equipment might
otherwise by physically located.” 554 S.W.3d at 583. We went on to hold that the compressors at
issue, which were physically located in Galveston County, were properly taxable in Washington
County because they were part of EXLP’s “Gulf Coast Region fleet” and, as such, were “assigned”
to EXLP’s “business location and storage yard in Washington County,” which EXLP used to
“manage the inventory of compressors in the Gulf Coast region.” Id. at 585–86.
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In this case, however, Valerus paid taxes in Harris County, where Valerus says it maintains
its principal place of business. Our holding in EXLP Leasing, however, clarifies that taxable situs
is tethered to “the location where the dealer maintains its inventory.” Id. at 583. See also id. (“The
process for prepayment of taxes indicates legislative intent to fix the tax situs for heavy equipment
at the business location where the dealer maintains its inventory . . . .”). Valerus does not argue
that the compressors at issue in this case are part of an inventory maintained in Harris County,
though that may be so. But if it is, that fact is not established simply because Harris County is
Valerus’s principal place of business.
For these reasons, and without hearing oral argument, see TEX. R. APP. P. 59.1, we affirm
the court of appeals’ judgment in part and reverse in part, rendering judgment that sections 23.1241
and 23.1242 control the taxable situs of the compressors at issue in this case. However, because
summary judgment could not have been granted on Valerus’s argument that it properly paid taxes
in Harris County, we remand to the trial court for further proceedings on where taxes for the
compressors at issue are due under Tax Code sections 23.1241 and 23.1242.
OPINION DELIVERED: November 16, 2018
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